Summary of Honda CEO Speech on Automobile Business Direction

Honda has been working on two top-priority management challenges in the midst of abrupt changes in the global business environment surrounding the automobile industry: to strengthen the structure of our automobile business and to further increase the speed of business transformation for future generations.

So, today, I would like to introduce some initiatives we are taking for our automobile business, especially how we are strengthening the structure of our automobile business, the direction we are taking with electrification, as well as some progress we have made to date.

Strengthening automobile business structure
Ever since I became the president of the company, I have been conveying the message that we will make Honda strong by creating strong products and also by strengthening our inter-regional coordination and collaboration. We put special emphasis on the strengthening of our global models, which have been the source of Honda's core competence, and also the enhancement of our regional models.

As a result, we currently have the five global models, namely Civic, Accord, CR-V, Fit/Jazz and Vezel/HR-V, and these five strong models now account for 60% of our global automobile sales. At the same time, our regional models such as the N Series for Japan, Pilot for North America and Crider for China are playing an important role as a source of growth for each respective region.

However, as a result of accommodating regional needs somewhat excessively in each individual region, we recognize that the number of models and variations at the trim and option level have increased and our efficiency has declined. So, we will undertake initiatives to further strengthen our inter-regional coordination and collaboration and advance our art of making automobiles in order to simultaneously increase the attractiveness and efficiency of both global and regional models.
Strengthening inter-regional coordination and collaboration
As for inter-regional coordination and collaboration, under the new operational structure we adopted for our automobile operations starting from April, we began reviewing and sharing the product lineup by grouping some of our six regions outside Japan based on a similarity of key factors, such as market needs and environmental regulations. With this initiative, by 2025, we will reduce the total number of variations at the trim and option level for our global models to one-third of what we have now. In addition, we will increase efficiency by eliminating and consolidating some similar regional models into even more competent models shared across multiple regions.
Advancement of our art of making automobiles (automobile development)
As for the advancement of automobile development, since I became the president, we have been increasing the efficiency and speed of our Monozukuri (the art of making things) by innovating the entire process, from planning and development all the way through production, by enabling the S-E-D-B (sales, manufacturing, R&D, purchasing*1) functions to collaborate beyond the boundaries of their divisions.

Moreover, we have already introduced the Honda Architecture in our development.

The Honda Architecture is a company-wide initiative which will increase the efficiency of development and expand parts-sharing for our mass-production models. The first model being developed with this new method will be the global model we are launching next year. And we will continue increasing the number of models to which we apply this new architecture.

With the strengthening of global and regional models through inter-regional coordination and collaboration and with the introduction of the Honda Architecture, by 2025, we will reduce the number of manhours we use for the development of mass-production models by 30%, and we will repurpose those manhours to accelerate our research and development in advanced areas for the future. In this way, we can continue creating new technologies which will support the future of Honda.

Strengthening our operational structure in the area of production
In addition to the area of development, we are further strengthening our operational structure in the area of production as well, so that we can create strong products with high efficiency.

We are making steady progress in optimizing our production capacity in all regions. When this is complete, we are expecting to see that our global capacity utilization rate, excluding China, will increase from 90% recorded in 2018, and we will be producing at full capacity by 2022.

In China, the third plant of Dongfeng Honda became newly operational, and this put us in a position where we can definitely accommodate market demand in China. We believe that this progress we made paved the way for the optimization of our global production capacity.

From here onward, we think it is important to increase our competitiveness by increasing the efficiency of our production system in North America.

For our business in North America, while keeping pace with sales expansion, we enhanced our model lineup and established a flexible production system where our plants sometimes produce various models in duplication to accommodate changes in market demand. However, as a result of the pursuit of high flexibility, an increase in the investment amount and a decline in production efficiency started to become an issue. Therefore, in North America as well, we will reduce the number of variations at the trim and option level, and at the same time, we will simplify the production model allocation at each plant. Through this initiative, we will re-establish a highly-efficient production system and realize the growth of North American business through the pursuit of quality.

By implementing these initiatives to increase production efficiency in each region, we are expecting to reduce global cost in the area of production by 10% by 2025, compared to the cost recorded in 2018.

Through all these initiatives I have mentioned, we will steadily strengthen the structure of our automobile business and realize the solidification of our existing automobile businesses by 2025, and, at the same time, we will accelerate our preparation for the future.

Direction for the electrification of our automobile products
Striving to realize a carbon-free society, Honda set a goal to electrify two-thirds of our global automobile unit sales by 2030.

When we talk about the introduction of electrified vehicles, there are two perspectives. One is the improvement of fuel economy, and the other is zero emissions. Regulations for the Corporate Average Fuel Economy (CAFE) standards are becoming increasingly stringent in every country around the world and complying with CAFE standards is one of the most important challenges for the automobile industry. At Honda, in light of the required infrastructure and how people use automobiles, we believe that hybrid technology is, at this moment, the most effective way for us to comply with CAFE standards. Therefore, we will electrify our products mainly with hybrid technologies. By increasing sales of our hybrid models all around the world, Honda will contribute to the global environment through the improvement of fuel economy.

To this end, we will expand the application of our 2-motor hybrid system to the entire lineup of Honda vehicles. In addition to the 2-motor hybrid system which is compatible with mid-to-large-sized vehicles, we developed a new, more compact 2-motor hybrid system suitable for small-sized vehicles. This small-sized 2-motor hybrid system will be adopted first by the all-new Fit which we are planning to exhibit as a world premiere at the Tokyo Motor Show this fall.

In addition to the expansion of the lineup of products equipped with the 2-motor hybrid system, we also will expand the application of the 2-motor hybrid system on a global basis. With that, by 2022, we are expecting to reduce the cost of the 2-motor hybrid system by 25% compared to the cost of this system in 2018.

As for zero emission vehicles, with our battery EVs we will comply with the Zero Emission Vehicle (ZEV) program being adopted by California and other states in the U.S. and China's New Energy Vehicle (NEV) mandate. We will efficiently introduce our battery EVs to the market by selecting the most appropriate partners and resources to satisfy the different needs in each region.

In North America, we will jointly develop battery components with General Motors and introduce highly-competitive battery EVs in the market.

In China, in order to keep up with the fast speed of electrification, we have already begun introducing battery EV models developed together with our local joint venture companies in China. While envisioning the introduction of battery EV models from the Honda brand, we will continue utilizing local resources in China and introduce more battery EV models in a timely manner to fulfill local market needs in China.

In Europe and Japan, we will introduce the Honda e, a new battery EV model, which was recently introduced as a prototype at the Geneva Motor Show.

To summarize, Honda will popularize and improve the business feasibility of electrified vehicles by focusing on hybrid vehicles and battery EVs

Changes in operational structure
In order to ensure the solid implementation of these initiatives I just introduced for our automobile business, we renewed our operational structure as of April. The aims of this structural change are to establish an organization which brings all regional operations together to strongly facilitate inter-regional coordination and collaboration and to increase the speed of our business operations by enabling prompt decisions and prompt execution.

Today, I introduced our initiatives to strengthen our automobile business structure and the direction of our electrification. Under the new organizational structure, we will realize our goals with a keen sense of speed.
Closing
As we stated in our 2030 Vision, Honda is striving to grow through the pursuit of quality so that we can fulfill our vision to "Serve people worldwide with the joy of expanding their life's potential."

Honda will continue taking on new challenges while being driven by strong passion, so that we can continue to be a company that society wants to exist even in 2050 after Honda becomes more than 100 years old.